After a Gloomy Prognosis, a Loss at Random House

By DAVID D. KIRKPATRICK

Published: June 17, 2002

Peter Olson, the chairman of Random House, played the Cassandra of the book business last fall, warning at every opportunity that a prolonged downturn was gripping the industry. To adjust to it, Mr. Olson instituted cost cuts and layoffs at Random House, the largest trade book publisher, that sent ripples of anxiety through authors and agents but left some rivals scratching their heads.

Now it turns out that Mr. Olson may have been projecting. The biggest downturn last fall appears to have been at Random House. This month, Random House's parent company, Bertelsmann of Germany, disclosed that Random House recorded an operating loss of 15 million euros ($14.2 million) in the second half of 2001, the first loss in at least four years at Bertelsmann's book division. Bertelsmann is privately owned and made the disclosure as part of its preparations for a planned public offering.

All major publishers felt a decline in demand for books because of the recession and the terrorist attacks, but none of the other major publishers that publicly report results suffered as much. Revenue for the last six months of the year fell slightly at Penguin Putnam, held steady at HarperCollins and rose to $377 million from $350 million at Simon & Schuster. None reported losses.

A spokesman for Random House, Stuart Applebaum, said that one-time factors contributed to the poor results. Its Argentine publishing subsidiary, Sudamericana, incurred a big accounting charge and steep losses because of that country's economic troubles, and a German reference publishing division was closed. In the United States, Random House recorded one-time expenses associated with its cost cuts, Mr. Applebaum said.

Still, those costs were relatively minor compared with Random House's total revenue of 1.09 billion euros for the second half, mostly from the United States and Europe. Mr. Applebaum defended Mr. Olson's gloomy prognosis for the United States market and the necessity of the layoffs. The difference in Random House's reported results and the results of its rivals, Mr. Applebaum said, "has to do with what each of us reports in our results as much as it does with the actual over-the-counter marketplace" for books.

"We stand by our suggestion that the fall of '01 was a very difficult time certainly for Random House but also for the booksellers and the industry over all," he said. He acknowledged, however, that although sales have not returned to their peak, the downturn has been shorter than some had feared. "The happy news," he said, "is that it appears that our retailers and our publishers are beyond that, and it is behind us."

eter Olson, the chairman of Random House, played the Cassandra of the book business last fall, warning at every opportunity that a prolonged downturn was gripping the industry. To adjust to it, Mr. Olson instituted cost cuts and layoffs at Random House, the largest trade book publisher, that sent ripples of anxiety through authors and agents but left some rivals scratching their heads.

Now it turns out that Mr. Olson may have been projecting. The biggest downturn last fall appears to have been at Random House. This month, Random House's parent company, Bertelsmann of Germany, disclosed that Random House recorded an operating loss of 15 million euros ($14.2 million) in the second half of 2001, the first loss in at least four years at Bertelsmann's book division. Bertelsmann is privately owned and made the disclosure as part of its preparations for a planned public offering.

All major publishers felt a decline in demand for books because of the recession and the terrorist attacks, but none of the other major publishers that publicly report results suffered as much. Revenue for the last six months of the year fell slightly at Penguin Putnam, held steady at HarperCollins and rose to $377 million from $350 million at Simon & Schuster. None reported losses.

A spokesman for Random House, Stuart Applebaum, said that one-time factors contributed to the poor results. Its Argentine publishing subsidiary, Sudamericana, incurred a big accounting charge and steep losses because of that country's economic troubles, and a German reference publishing division was closed. In the United States, Random House recorded one-time expenses associated with its cost cuts, Mr. Applebaum said.

Still, those costs were relatively minor compared with Random House's total revenue of 1.09 billion euros for the second half, mostly from the United States and Europe. Mr. Applebaum defended Mr. Olson's gloomy prognosis for the United States market and the necessity of the layoffs. The difference in Random House's reported results and the results of its rivals, Mr. Applebaum said, "has to do with what each of us reports in our results as much as it does with the actual over-the-counter marketplace" for books.

"We stand by our suggestion that the fall of '01 was a very difficult time certainly for Random House but also for the booksellers and the industry over all," he said. He acknowledged, however, that although sales have not returned to their peak, the downturn has been shorter than some had feared. "The happy news," he said, "is that it appears that our retailers and our publishers are beyond that, and it is behind us."